Hedgehog or a Fox?

10/23/2014 9:45 am EST

Focus: STOCKS

Robert Carlson

Editor, Retirement Watch

The investment markets have changed dramatically in the past decade, notes Robert Carlson from Retirement Watch, so investors need to adopt a different strategy.

JOHN RANSOM:  I’m John Ransom for the MoneyShow joined by Robert Carlson, editor and CEO of Retirement Watch.  How are you doing today, Bob?

ROBERT CARLSON:  I’m doing well, John. 

JOHN RANSOM:  Thanks for joining us, I appreciate it, so talk to the folks a little bit about this concept of investing like a fox, not a hedgehog. 

ROBERT CARLSON:  Okay, well the rule is a hedgehog knows one thing and sticks with it and a fox knows many things and so tries different things.  Now you can’t really invest like a hedgehog these days because the markets are changing, the options available keep changing so if you stay and invest based on what you learned 20 years ago, you’re probably going to do very poorly.  You need to be like a fox.  You need to examine different things.  You need to be adaptive and dynamic and so adjust with the markets and with the investment options that are out there.

JOHN RANSOM:  So it’s not the kind of buy-and-hold philosophy maybe that our grandparents and our parents grew up with where you can buy Coca-Cola and hold on to it forever.  Things change pretty rapidly now. 

ROBERT CARLSON:  Right, things change for individual companies, they change for different investment strategies.  You can get a traditional 60% stock, 40% bond portfolio and hold on to it but you’re going to have periods of time when that goes down 20%, 30%, or 40% and you’re going to have the courage to hang on for it to turn around. 

JOHN RANSOM:  Okay, and so are there specific things that are happening right now in the market that are making it a little bit better for foxes because it seems to me that would provide as an investor, that provides me with opportunity, right?

ROBERT CARLSON:  Correct.  What we have now is it’s pretty clear the Fed is ending its period of these historically low interest rates.  We’re going to go gradually back to a period of higher rates but it’s also clear that the quantitative easing has pulled a lot out of gains that would’ve been spread out over 10 or more years into the last three or four years so investors are going to have to realize that.  They’re going to have to realize that interest rates are going to go up and that’s going to hurt a lot of traditional income investments and stock returns are going to be lower than they would’ve been in the past.  One way you can handle that is to be more dynamic in your investing.  Don’t just try to hold something for an extended period of time, but look at what’s happening with the Fed, with the economy, and buy some things when they’re low and then sell them when they get higher.

JOHN RANSOM:  So essentially it’s kind of momentum combined with valuation model that you’re looking at whereas before, value investing for example might be the only way some people invested, but now you kind of have to look at both don’t you?

ROBERT CARLSON:  Right, and that’s a big reason for that is the Fed has been in there basically manipulating the markets and you have to incorporate that in your strategy there.  For example, a lot of quantitative investors who develop strategies based on what’s worked historically and they’ve really gotten hammered the last few years because the Fed’s been in there manipulating these markets and what’s worked in the past does not work for them. 

JOHN RANSOM:  Thanks so much.  Appreciate you coming by today, Bob.  Thanks so much.

ROBERT CARLSON:  Thank you.

Related Articles on STOCKS